AIG to buy GE's Japan insurance unit

U.S. insurer pays over $2 bln for GE Edison and US units

By

AllenWan

SachiIzumi

TOKYO (CBS.MW) -- American International Group has agreed to buy General Electric's life insurance operations in Japan in a multibillion deal that will make the U.S. company one of the biggest life insurers in that country.

AIG
AIG, +1.30%
will pay between $2.1 billion and $2.2 billion for GE Edison Life Insurance in Japan and GE's
GE, +1.65%
U.S.-based auto and home insurance business, the companies announced Thursday.

GE Edison would be AIG's third life insurance unit in Japan and boost AIG's ranking in Japan. AIG would become the sixth biggest insurer in Japan in terms of annual life insurance premium revenues and eighth in terms of outstanding balance of contracts.

The deal also marks the scaling down of some of GE's insurance operations, which company officials had put under review after the diversified conglomerate took a massive $1.4 billion after-tax charge for its reinsurance unit late last year.

"This transaction represents a significant opportunity to expand AIG's presence in the Japanese life insurance market, the second largest in the world," AIG chairman Maurice Greenberg said in a statement.

AIG entered the Japanese life insurance market in 1973 with the launch of ALICO Japan and expanded in recent years with the takeover of the failed Chiyoda Mutual Life, which was renamed AIG Star.

At a news conference in Tokyo, AIG Japan CEO Donald Kanak said that the U.S. insurer was interested in GE Edison because of its different sales channels and its good performance since it inherited the operations of failed Toho Mutual Life back in 2000.

GE Edison CEO Nobuhiko Ito said that the reason it decided to sell to AIG was because the insurance business requires scale and that AIG's offer was a good opportunity for employees and customers

Analysts also applauded the deal, saying that it allows AIG, which was founded in Shanghai, China, to expand in the important Asian market and GE to exit non-core businesses.

"The deal makes sense for both AIG and GE. GE Edison and auto/fire insurance operations are not core focus areas of GE's life operations and AIG is one of only a few players in the industry with the ability to buy an operation of this size," A.G. Edwards analyst J. Paul Newsome said in a note prior to the widely anticipated deal.

In New York Wednesday, AIG stock fell $1.24, or 2.18 percent, on Wednesday to close at $55.65. GE shares dropped 67 cents, or 2.24 percent, to end at $29.26.

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